Thinking of purchasing a new life insurance policy? Before you make a commitment, it’s important to unders
If you’re considering a whole life or universal policy, the rate of return on the cash value will also drive the premium up or down. “A higher rate of return on cash value can go a long way toward keeping policy premiums to a minimum,” says Reno Frazzitta, an investment advisor, certified retirement counselor and president of Secure My Funds in Clinton Township, Mich. “A lower-than-expected return on cash value will require a higher funding amount to keep the policy in force longer.”
But as Chris Huntley, director of marketing at JRC Insurance Group, in San Diego, Calif., explains, "Age is the most important contributor to both term and whole life insurance rates." How old you are plays the biggest role in how much you'll pay to purchase a new life insurance policy.
THE AGE FACTOR
The annual premium, or “rate,” for a term life insurance policy is determined at the time of purchase and set for the duration of the policy. “The rate is for the duration of the term,” says Frazzitta.
Typically, the premium amount increases about 8% to 10% for every year of age, according to Ted Bernstein, CEO, Life Insurance Concepts, Inc. “A 45-year-old male will pay on average $1,125 for a new, 20-year term policy with $1,000,000 of coverage,” he says. “The same policy purchased at age 46, will cost $1,225 – and $1,345 a year if purchased at age 47.”
The reason every year inches up the cost of term life insurance is simple math. “Every birthday puts you one year closer to your life expectancy and thus, you’re are more expensive to insure,” says Huntley, who reports that rates increase every year by 5% to 8% in your 40s, and by 9% to 12% each year if you’re over age 50.